Pound to Dollar Outlook: Why the USD Is Winning the Central Bank Battle

Modified: Friday, 19 June 2026 12:01 BST - Written by Frank Davies

STORY LINK Pound to Dollar Outlook: Why the USD Is Winning the Central Bank Battle

The Pound to Dollar exchange rate (GBP/USD) has fallen to two-month lows near 1.3200 as investors reacted to a growing divergence between Federal Reserve and Bank of England policy expectations.

While both central banks left interest rates unchanged at 3.75%, the Federal Reserve struck a notably hawkish tone and signalled a greater willingness to tighten policy if inflation remains elevated, while the Bank of England's cautious stance and political uncertainty following Andy Burnham's Makerfield victory weighed heavily on Sterling.

GBP/USD Forecasts: Slide to 2-Month Lows

Central bank policy decisions have dominated over the past 24 hours. The Pound to Dollar (GBP/USD) exchange rate dipped sharply after Wednesday’s Federal Reserve policy decision and, after a limited bounce, slumped to 2-month lows near 1.3200 following the Bank of England (BoE) policy decision.

If GBP/USD breaks below 1.3160, the next area of support would be the 1.30 area seen in November.

The dollar was boosted by a hawkish Fed decision while an in-line BoE decision failed to boost the Pound.

The Federal Reserve held interest rates at 3.75%, in line with expectations. Under new chair Warsh the statement was stripped back to bare essentials with no forward guidance.

According to the updated interest rate forecasts, half of the FOMC members expect interest rates to increase this year. Warsh did not submit a forecast, but his rhetoric was broadly hawkish with a strong focus on the need to bring inflation back to target.

ING commented; “the big commitment to price stability and the hawkish swing in the Dot Plots were the key drivers of the move.”

It added the Fed looks prepped to move should inflation continue to drift in the wrong direction.

ING is not, however, overly bullish on the dollar; “Our house view is that inflation could turn a little lower later this year and the Fed can avoid tightening. The dollar is holding gains, but probably does not need to rally too much more.”

According to MUFG; “Overall, the Fed’s hawkish policy update should help to keep US rates and the US dollar at higher levels heading into the summer.”

As expected, the BoE held interest rates at 3.75%. There was a 7-2 vote for the decision as Pill and Greene voted for a rate hike.

JP Morgan commented; "Today’s BoE meeting was all about subtext, and the message was one of buying time.”

State Street Markets Head Of Macro Strategy Michael Metcalfe added; "The BoE is reverting to the 'Maradona theory' of monetary policy. The point is that central banks do not always need to raise rates aggressively when inflation rises; clear communication can do much of the work.”

ING is not expecting a BoE rate hike; “It feels like it would take a lot for the five more neutral-to-dovish members of the nine-strong committee to vote for a hike, barring the Iran deal falling apart and energy prices moving materially higher.”

It added; “There's nothing in today's decision that changes our mind that the next move is likely to be a rate cut in 2027.”

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TAGS: Pound Dollar Forecasts